China Southern Air Cargo Takes Strategic Leap!

In a bold move, Guangzhou-based China Southern Air Holding is reportedly looking to launch an initial public offering (IPO) for its subsidiary, China Southern Air Cargo, on the Hong Kong Stock Exchange (HKEX), according to a Bloomberg report. This decision could potentially rake in "hundreds of millions of dollars," but it comes just after the company abandoned an earlier plan to list on the Shanghai Stock Exchange—especially significant as the US and China continue their high-stakes trade war.

Navigating Rough Waters: Past Challenges Amid New Opportunities

Sources familiar with the situation, who spoke anonymously, indicate that discussions about the Hong Kong IPO are still in their early stages. This follows the February withdrawal of China Southern Air Cargo's application for a Shanghai bourse listing. At that time, China Southern Airlines, the majority shareholder and a subsidiary of China Southern Air Holding, cited unfavorable market conditions and capital requirements as factors influencing their decision.

Profitability Hurdles: Why Shanghai Wasn't an Option

Chinese regulations stipulate that companies listed on the A-share market, like China Southern Airlines, must demonstrate profitability for three consecutive years before they can spin off subsidiaries. Unfortunately for them, the airline reported losses in both the fiscal years of 2022 and 2023, with forecasts suggesting another loss for 2024. This sequence of red ink effectively disqualified them from considering a Shanghai listing.

Hong Kong's IPO Requirements: Could They Make It?

Traditionally, the HKEX demands a showing of consistent profitability from companies wishing to list subsidiaries. Specifically, applicants usually need to report at least HKD 35 million (around USD 4.5 million) in profits from the previous year and cumulative profits of at least HKD 45 million (approximately USD 5.8 million) over the last two years. However, there may be alternative pathways to eligibility if they meet other criteria such as market capitalization, revenue, and cash flow.

What's Next for China Southern Air Cargo?

As China Southern Air Cargo explores this promising opportunity in Hong Kong, the unfolding story reflects the complex dynamics of the airline industry amid global challenges. Investors and analysts alike will be watching closely to see how this potential IPO evolves and whether the company can rise above its past hurdles in a competitive market.